3 Hidden Factors to Consider When Selling an Insurance Agency

Insurance Agencies continue to be an attractive investment for private equity firms. Recently Optis Partners, an M&A consulting firm based in Chicago issued their annual report on mergers and acquisitions for the insurance industry for the year 2016 (the report can be found here). Not surprisingly, last year the industry recorded the second highest number of transactions per year since Optis Partners began tracking the data. In recent conversation with M&A advisors, the first few months of 2017 are on pace for an even stronger year. Additionally, over half of the deals completed last year involved private equity money. This increase in private equity investment continues to drive up the price for owners looking to sell their agency.

Reports of M&A transactions almost always lead to Agency Owners asking the obvious question: How much are these agencies selling for? Don’t get me wrong, valuations are very important if you are looking to sell your agency, but they are not always the most important factors Owners should consider when selling an agency. The three most overlooked factors Agency Owners need to consider when selling are:

  1. Culture – What level of client service does the acquiring firm provide their clients? Does it match or exceed your agency’s service model? Does the new agency sell as a team or is it an individual selling environment? Culture alignment is critical for Owners looking to maximize the earn-out after the sale. Poor culture alignment often leads to an increase in post-sale client and employee attrition.
  1. Time Horizon – Agency Owners looking for the sale to fund their retirement don’t always understand the time required in transitioning their clients and staff to a new agency. At a time when owners are preparing to work less they will need to work more to ensure a smooth transition.
  1. Legacy – Most agency Owners have spent their entire career building their business and their brand and with one swoop of the pen they will potentially be signing away a piece of themselves. One can put a dollar value on the agency but they cannot put a value on the owner’s legacy that is often lost in a sales transaction. Owners frequently go thru a post-sale grieving process that can be mitigated by properly transitioning your story and brand to a new agency so your legacy can become part of the ethos of the new agency.

The agency valuation might spark a conversation between a buyer and seller but this should only be a starting point in the sales process. An Agency Owner should spend time doing due diligence with the acquiring firm to be certain it is the right fit for the agency’s team, clients, and legacy.

BDF’s Commercial Insurance Practice Group understands equity compensation and the valuation of business and uses this knowledge to help insurance professionals develop financial plans while minimizing tax bills. Whether working with a producer or business owner, we focus on one’s individual goals, family involvement and living a full life. 

Jim King, CPA, CFP® is an owner and wealth manager at BDF where he leads the Commercial Insurance Professionals Practice Group. He uses his understanding of the insurance industry to help insurance professionals maximize their prime earning years, develop a discipline around saving those earnings and put a plan in place to best utilize assets. His focus on creating financial blueprints for his clients has earned him recognition as a “Five Star Wealth Manager” by Chicago Magazine.